Digital payments in Latin America have rapidly replaced cash – driven by innovation, interoperability, and policy – delivering gains in convenience, financial inclusion, efficiency, and growth, while raising complex challenges around informality and regulation.
Editor’s note: For a broader synthesis of themes covered in this article, check out Issue 2 of our VoxDevLit on Microfinance. You can listen to this podcast on Spotify, Apple Podcasts, or wherever else you get your podcasts. You can also watch this conversation on YouTube.
In this episode of VoxDevTalks, Diego Vera-Cossio discusses the findings from a recent report on the rapid shift from cash to digital payments across Latin America and the Caribbean. He explains how digital transactions have surged, what this means for individuals and firms, and the lessons policymakers elsewhere can draw.
At its core, this is a story of behavioural change, technological innovation, and institutional adaptation happening at remarkable speed.
“The number of electronic transactions tripled by 2023… a massive way and substantial way in which the way we transact in Latin America has changed.”
A rapid and widespread shift away from cash
The scale and pace of adoption have been extraordinary. Drawing on central bank data from six economies, the report shows that electronic transactions tripled between 2019 and 2023. This is not simply a marginal shift – it represents a fundamental transformation in how people pay, save, and interact economically.
Importantly, this transition has not been imposed from above. Rather than governments forcing adoption, it reflects a widespread shift in preferences. Surveys across 17 countries reveal that in 16 of them, at least half the population now prefers digital payments over cash.
Several factors explain this change. Convenience is key, but safety is equally important in a region where crime remains a concern. As Vera-Cossio notes, many users prefer using digital payments because they feel safer. Digital payments also offer versatility, enabling everything from peer-to-peer transfers to bill payments and government disbursements.
This broad acceptance extends beyond individuals. Governments and private firms alike are embracing digital systems, reinforcing their role as a central pillar of modern economic activity.
COVID-19 as an accelerator, not the origin
While the pandemic played a role in accelerating adoption, it was not the starting point. Digital payments had already been gaining traction for years. According to World Bank data, the share of adults using newer digital payment methods rose from just 3% in 2011 to 40% in 2021.
COVID-19 acted as a catalyst, pushing hesitant users towards cashless options. However, the trend has continued well beyond the pandemic. Cash usage in in-person transactions fell from 38% in 2020 to 25% in 2024, and all signs suggest further decline.
As Vera-Cossio explains, this transformation had been “going on silently for a while”, with the pandemic serving as a powerful coordination shock that accelerated an already underway transition.
Real-world impacts: From financial resilience to reduced crime
The shift to digital payments is not merely technological – it has tangible effects on everyday life:
- Access to digital financial tools improves household financial management. Evidence from Latin America and beyond shows that digital accounts can increase savings and enhance resilience to economic shocks, particularly among poorer households.
- Digital payments can reduce crime. In one striking example from Santiago, Chile, a reform that eliminated cash handling by bus drivers led to fewer robberies. As Vera-Cossio notes, “unsurprisingly, but very importantly, the number of robberies declined”.
- Digital systems improve efficiency in government programmes. Direct transfers into digital accounts reduce administrative costs, minimise failed payments, and save time for recipients. In Colombia, an experiment showed that digital disbursements reduced failed payment attempts and improved access for beneficiaries, particularly those with no prior financial history.
Driving economic growth and business expansion
Perhaps the most exciting implication of digital payments lies in their potential to drive economic growth.
As economies become more digitised, payment systems form the backbone of economic activity. Faster, cheaper, and more reliable transactions reduce frictions, enabling firms to operate more efficiently and scale up.
Evidence from Brazil illustrates this effect clearly. Following the rollout of its fast payment system, Pix, firms in previously cash-intensive sectors experienced significant growth. The shift from cash to digital payments created efficiency gains that translated directly into business expansion.
“Having a modern digital payment system is going to make transactions more efficient, and this can sustain into firm growth.”
Digital payments also deepen financial inclusion. Individuals encouraged to adopt digital tools are more likely to engage with formal financial services, including borrowing. This opens pathways to broader economic participation and long-term development.
Informality: Opportunity and complexity
One of the most intriguing aspects of this transformation is its relationship with informality. Latin America has historically had large informal sectors, and digital payments introduce both opportunities and challenges in this context.
On the one hand, digital systems can operate independently of formal status.
“To have access and to use digital payments, neither individuals nor firms need to be formal.”
This flexibility has allowed widespread adoption even in highly informal economies.
On the other hand, increased transaction transparency raises concerns about taxation and regulation. In some cases, policies designed to promote digital payments have had unintended consequences. Evidence from Uruguay shows that mandating digital wage payments led some firms to exit the formal sector altogether rather than comply.
This highlights a key policy tension: while digital payments can support formalisation, poorly designed interventions may push firms in the opposite direction. Trust in how governments use financial data is therefore critical to sustaining adoption.
Innovation, interoperability, and the role of policy
The report identifies three core drivers behind the digital payments revolution: innovation, interoperability, and coordinated adoption.
Innovation has been fuelled by a rapidly growing fintech sector. The number of fintech firms in the region increased from around 700 in 2017 to over 3,000 in 2023, with a significant share focused on payments. This surge has expanded the supply of user-friendly digital solutions.
However, innovation alone is not enough. Payment systems are characterised by strong network effects – their value increases as more people use them. Without coordination, fragmented systems can emerge, limiting usability.
This is where interoperability becomes crucial. Governments across the region have played a key role in ensuring that different payment platforms can interact seamlessly.
“[We] want to make sure that everybody can transact with each other, regardless of the provider of the financial account.”
Different countries have taken different approaches. Brazil’s central bank led the development of Pix, while Peru relied more on private sector collaboration with regulatory support. Despite these differences, both approaches have delivered strong adoption, suggesting there is no single model for success.
Solving adoption challenges through ‘big push’ policies
The final piece of the puzzle is overcoming coordination failures on the demand side. Individuals may hesitate to adopt digital payments if others around them have not yet done so, creating a self-reinforcing cycle of low uptake.
Large-scale interventions – what economists call ‘big push’ policies – can break this cycle. The pandemic was one such shock, but governments have also played a role by digitising social transfers and public payments.
By moving welfare payments into digital systems, governments simultaneously expand financial inclusion and encourage widespread adoption. Crucially, this approach brings in populations that were previously excluded from formal financial services.
As Vera-Cossio notes, these policies help “bring a lot of people into the financial system... the people that were traditionally marginalised from the financial system”.